Other than your home, and, maybe your child’s college tuition fee, a car purchase might be the most straining financial commitment you make. I love nice cars, really I do. But I also try to be responsible with my finances.
I know buying anything new, especially a car, is really enticing, you need to take a cold, hard look at how much dollars you could save over time by opting for a used car instead. Is a used car worth buying? Before we jump into the benefits, here’s something else you should consider.
On average, a person will own 7 to 13 cars in a lifetime, each costing roughly $30,000 based on a report by the National Automobile Dealers Association. If each of those cars was 2 or 3 years old at the time of purchase, you could save between $70,000 to $130,000 during your lifetime.
Sure, there are overpriced used cars and you can find bargain buys on a new car, but it is not only the sticker price that makes a used car costly. The subsequent cost, associated fees, and a sinister-sounding financial word: depreciation, all add up to over the first few years of new car ownership. This is bad news if you later find yourself on the wrong side of your car loan payment.
As a result, I have reluctantly come to the realization that a new car is not as exciting as it is portrayed. Is a used car worth buying? Here are 6 benefits that might convince you to buy a used car (in like-new condition) over a new one.
Depreciation: the dirty little secret of buying a car
Once you get a grasp of how car depreciation works and how it sucks money out of your wallet, you’ll be in a position to save boatloads of dollars over your lifetime. You’ve probably heard that a new car loses up to 20% of its value as soon as you purchase it. It is true, in less than a minute, a $25,000 car will lose $5,000 as you drive off with excitement.
After 1 month, mileage and wear and tear could push that number to 30%, or $7,500. How come you do not feel this big loss? That’s because the effect comes much later when you sell or trade-in your car. Let’s look at two similar cars, one is used and the other is new.
Depreciation on a new car:
Let’s assume you purchase a new car for $25,000 and resell it three years later for $12,500. This means that in three years the car has cost you $12,500 in depreciation.
Depreciation on a used car:
Now let’s say you purchase the same car at 3 years old. You could get the car for $12,500. Three years down the road you sell it for $9,500. This means that in three years the car has only cost you $3,500 in depreciation.
Now you might say “but, driving a new car is much better, you get a warranty on some parts, and you have fewer repairs to do!” Yes, you’re absolutely right. If driving a new car is worth the extra cost, then go for it. But don’t say we didn’t warn you when three years later you can’t find someone to take it off of your hands at a ‘good price’.
Useless Add-ons on New Cars, Cheaper Features on Used Cars
‘Get them to pay for more’ is probably the oldest trick in the dealer’s book. They’ll install additional dealer options; some you might not even need. A protective film, pinstripe, or the immortal ‘anti-rust coating’. These are add-ons new car buyers can easily get for a much lower cost from an after-market installer.
Either way, these add-ons don’t contribute a dime to the car’s resale value anyway. You might not get every feature you want when you buy a used car, but you certainly won’t end up paying a premium for things you didn’t ask for. As a matter of fact, you might even get a couple of features you like for free.
Another benefit to buying used is that when you search for specific features that you want in a used car, like a navigation system or a sunroof, you’ll pay way less than the original owner did for those things.
Dealers and Their Crazy Charges
As if paying $500 for rust-proofing on a new car isn’t bad enough, car dealers slam new car buyers with destination fees, shipping charges, and “dealer preparation.” Compared to the unnecessary pinstripe which you can turn down, these charges feel even worse because owners have nothing to show for them except a lower bank account. All you’ll have to do when you buy a used car is to visit the DMV to pay for title, tag, and registration fee, but you won’t have to deal with the silly add-ons that dealers try to push on to your account balance.
Instead of being in a position where you buy new and cave to dealer fees, you get the upper hand when you’re in the market for a used car. You have a much better case for negotiating, after all, they’re the ones that need to sell the car before it depreciates even further.
Forget the outdated used-car stigmas
It was a common thing for people to bring down used cars by labeling them as a way to ‘buy someone else’s problems.’ This doesn’t hold in most cases. Improvements in technology have made cars more dependable today than they were, say 10-15 years ago. It is now common for cars to deliver more than 100,000 miles before major repairs are needed.
All cars require regular maintenance such as tire rotation, oil changes, brake jobs, etc. But today’s cars can be driven much farther between these scheduled maintenance visits. Even brake pads and tires last much longer than before.
I’ll let you in on a secret, buying a used car doesn’t carry the same stigma it once did because carmakers no longer redesign their models every year, so when a 3-year-old like-new Mercedes shows up in your driveway, nobody will care if you didn’t buy it at the dealers’.
Of course, we want to be fair to new cars. It’s not like there’s no advantage to owning one, there are:
It’s easier to shop for a new car:
If there’s anything car buyers agree on, it’s the fact that new cars are perfect, so evaluating the condition isn’t a factor. No need to pay for a mechanic’s time. Also, you will never have to wait on a used car owner’s lender to send the title, and most dealerships will handle all of the paperwork on your behalf.
You can get a specific car that you want. If a dealer doesn’t have a vehicle on the lot in the trim or color you are looking for, they can order it from the manufacturer or swap with another dealer.
If there’s one thing car buyers agree on, it’s the fact that new cars are perfect. There’s no history to evaluate before buying, no need to pay for the time a mechanic spends checking the condition of the car.
No worrying if the previous owner had accidents, failed to perform periodic maintenance, such as regular oil and filter changes, or worry about any wear and tear, like you would with an old car. Everything will be factory-fresh, and the interior immaculate. A new car should have very little miles on the odometer, having come straight from the factory to the dealership.
Every year new comfort, safety, and performance-enhancing features are introduced in new cars. You will have to wait several years to get them in a used car. Going at the rapid technological evolution in performance, infotainment, safety, and connectivity, even a two- or three-year-old car can be outdated.
For instance, in the last few years, we’ve seen new technologies such as automatic emergency braking, lane-keeping assist, and adaptive cruise control come as standard equipment on many new vehicles, and as low-cost options on others.
Peace of mind
Though used cars are much more dependable than they were in the past, trust me, there are used cars you shouldn’t buy. A new, well-maintained car will be more reliable than a used one. You can have a new car fixed for free under the included factory warranty if it breaks down, at least for the first 36,000 miles or three years that most carmakers offer.
How many people have you heard bragging about the used car they just bought? No, not that jerk.
Other Options to Consider
You aren’t limited to buying either a new or used car, there are other options worth considering that can save you a considerable amount of money:
Certified Pre-Owned Cars
Certified used cars combine many of the advantages of both new and used cars. A certified pre-owned (CPO) car is a vehicle that has gone through very gentle and light use. They usually have very low miles, no history of major accidents, and are just a few years old. The dealer closely inspects them, following the manufacturer’s checklist, and they’re offered with factory warranties and other benefits. Many CPO cars are lease returns or those driven by employees of the manufacturer or dealership.
You’ll only see factory CPO cars at their brand’s franchised new car dealership. If you are offered a ‘certified, Toyota at a Honda dealership, it is not a Toyota factory certified vehicle and will not come with the Toyota warranty extensions you would receive from a true factory CPO car.
Have it in your mind that, while CPO cars usually come with a lower price tag compared to new cars, they are pricier than non-certified used vehicles.
This is one popular way to get behind the wheel of a new car while making payments that are well below what you would have paid if you were buying the car outright. When you lease a new car, you’ll just have to pay for the depreciation that’s expected to occur during the lease duration, plus interest and other fees.
After the initial payment at signing, you’re expected to make an agreed monthly payment until the lease ends.
You’re not the actual owner of the car – the leasing company does – so you return it to the dealer when your contract expires. There are rules about use, damage, maintenance, and wear and tear, as well as mileage limits spelled out in a lease contract.
The concept of leasing is simple, but it does come with a language that’s different from car buying and can be quite confusing to people who have never been through the process.
Leasing a Used Car
Leasing a used car is by far the least expensive path to getting into a vehicle. While it is uncommon to lease a used car outside of luxury car dealerships, leasing a late-model used car comes with many of the benefits of both buying and leasing, with a much lower price tag than either of the other options.
Making the Decision
In truth, there is no best option between buying new, used, certified pre-owned, or leasing a car. You’ll need to make the final decision for yourself. Irrespective of what you decide the best option is, you should either pay cash upfront or make sure you can ‘comfortably’ afford the car. A good rule of thumb to follow is that you should be able to pay the car off in three years. If you cannot afford the payments at this rate and still live comfortably, then you most likely can’t afford the car.
This might have come off as a rant against buying new cars, but that’s far from it. We all know a new car smells great – actually, fantastic – but how much is that fresh, new scent really costing you? By looking beyond just the sale price and considering the overall cost of buying a new car, you are in a better position to evaluate how much you are shelling out for the privilege of being the first owner of a car.
It takes a little more time to do the research but judging from the initial price to the long-term cost, you avoid financial strain by buying a ‘like-new’ used car or leasing a car instead of outright buying it. If you need help you can always check out guide on how to evaluate a used car.